The price of digital

It costs less to buy games from Tesco than it does via Steam.Retail price wars and general cost depreciation means that, on average, games lose 25 per cent of their value in just one month on the UK High Street.And that just doesn’t happen in the same way in the digital space. Whereas Bethesda and GAME cut Skyrim’s price to just over £22 before Christmas, over digital platforms it held its £34.99 RRP.Retail naysayers would have you believe that digital distribution will dominate the industry. But surely consumers don’t want to pay more for a product that, in theory, should be cheaper with no physical component? “Sometimes the fact that digital prices don’t drop as quickly as physical becomes a problem for our retail clients since the end consumer clearly disapproves of the large price gaps between the two,” says Anders Emblad, CEO of Gem-owned white label digital providers Ztorm. “It can make the retailers look bad.”Metaboli’s European sales director Mario Utz adds: “We face a situation where the prices in physical retail are often lower than digital. We are trying to reduce this gap but we have to react differently with each individual title.”Of course, discounting does happen in the download space. And these deals can be more ad-hoc and flexible than they can on the High Street.BUILT ON BARGAINSSteam’s much-lauded sales often see hundreds of pounds worth of games bundled together for the same price as a single boxed title.Gamersgate’s business developer Gustav Nisser says that while price cutting on the High Street can effectively ‘kill’ a game, that’s not the case in the digital arena.“If we discount a game – even by 80 per cent – over a weekend, it doesn’t kill the game,” he says. “In physical stores it does. In digital stores, we’ve seen it breathe new life into the title and its franchise, subsequently increasing its sales even when back to full price.”It’s not just the latest releases that enjoy healthier sales. Back catalogue titles that would be relegated to pre-owned shelves in bricks-and-mortar stores can stand toe-to-toe with current blockbusters in the digital world.“Our back catalogue generates steady sales and gives us the opportunity to run campaigns on older titles – something that would be much more risky with physical products,” says Nisser.“Our Metro 2033 sale, for example, helped people discover the game, which in turn permanently increased the number of sales. We’re still seeing the effects over a year later.”Green Man Gaming MD Paul Sulyok concurs: “We repeatedly see examples of a six-month-old product at the right price outselling a new release where the publisher has an unrealistic RRP.”THE TRUE COSTGetGames operations director Dermot Stapleton adds that “the opportunity to re-invigorate a good title regularly is something that can only really be achieved in this digital marketplace.”But some digital retailers argue that heavy discounting is not a perfect solution. While it can help fuel downloads of titles, it can be harmful to the digital market.“The mission of our industry is to convince players to buy games when they are released – not when they are discounted,” explains GOG.com MD Guillaume Rambourg. “The overabundance of promotional sales works against gamers, who often end up buying more games than they wished to and therefore do not have time to enjoy them. “Gamers jump from offers to offers. They now collect games, rather than developing an emotional relationship with a product they should love.“Many digital outlets make their bread-and-butter off steep discounts, and that’s bad for retailers, for publishers, for gamers, and for the whole industry. Pricing like this damages the long-term value of a brand, and the long-term value of games as a whole.”THINKING OUT OF THE BOXThe best solution is to embrace the one thing that digital retailers have over their bricks-and-mortar competition: flexibility. The download companies that will succeed will be the ones that react quickly to sales trends, that think creatively about their promotions, and don’t just act like physical shops.“This is a 24/7 market – more akin to the financial markets than traditional retail,” Sulyok concludes. “Both retailers and publishers who take a traditional nine to five approach fail to achieve the potential. Being agile is key, both commercially and technically.”THE FUTURE OF DIGITAL RETAILFurther growth of the downloadable games market is both indisputable and inevitable, but how are digital retailers shaping their offers as they go forward?Many are experimenting with new business models. Green Man Gaming, for example, has signed a partnership with game streaming company Gaikai, allowing players to try games before they buy. Meanwhile, Gamersgate is launching its ad-financed games service Void this summer, where customers have free access to titles after watching a few ads.GetGames’ Dermot Stapleton believes digital retail will become a lot more specialised, with fewer sites selling every type of game.“It won’t be long before you start seeing the penny drop that the games-buying public has specific areas of interest,” he explains. “They will favour outlets that can offer them exactly the type of games they want and provide a community, specialist knowledge and good service – a bit like our specialist flight and train sim sites do at the moment.”Some companies are even looking to take their catalogues beyond PC and onto new platforms, particularly Smart TVs. New payment models such as ‘pay what you like’ and Kickstarter-style crowd funding are also being watched carefully.